Alleged Russian Procurement Ring Not an Isolated Case

The U.S. Attorney’s office in Brooklyn provided this passport image of Alexander Posobilov, the procurement manager of Arc Electronics. (Photo: U.S. Attorney for the Eastern District of New York)

The arrest of 11 members of an alleged Russian military procurement ring in Houston earlier this month was an exceptional but not isolated example of foreign interests attempting to acquire advanced technologies by skirting U.S. export control laws. “This is exceptional in the sense of the scale and scope. But these types of procurement networks are very common,” said Douglas Jacobson, an international trade attorney who specializes in export controls. “Efforts to procure a variety of U.S. [products] are common from Iran, from China, from other countries,” he added.

On October 3 the U.S. Attorney’s Office for the Eastern District of New York announced charges against the principals of Arc Electronics of Houston and Moscow-based Apex System for illegally exporting microelectronics from the U.S. to Russian military and intelligence agencies, often through intermediary procurement firms. According to the attorney’s office, the defendants “engaged in a surreptitious and systematic conspiracy” since 2008 to obtain and ship export-controlled items such as analog-to-digital converters, static random access memory chips, microcontrollers and microprocessors. The items could be applied in a range of military systems, including radar and surveillance systems, missile guidance systems and detonation triggers. The main port of export was John F. Kennedy International Airport in New York.

In conjunction with the charges, the U.S. Department of Commerce added to its “Entity List” the names of 165 foreign persons and companies “who received, trans-shipped or otherwise facilitated” the export of the controlled items by Arc Electronics. Those on the list are subject to specific license requirements before exporting items from the U.S., with the “presumption that no such license will be granted,” the U.S. attorney’s office said. In response to the listing, Russian Deputy Prime Minister Dmitry Rogozin said, “None of them supplied anything to us,” according to RIA Novosti news agency. “We are currently consolidating assets to build our own electronic components base,” Rogozin added.

Jacobson said the case stands out because it implicates Russia, combines the efforts of numerous federal agencies and adds a large number of names to the Entity List. But there are other examples of foreign-affiliated procurement rings. In September the U.S. attorney’s office announced charges against a Chinese man for attempting to export “thousands of pounds” of aerospace-grade carbon fiber from the U.S. to China.

“There’s always going to be a procurement network like this that [will go] to elaborate means to disguise the ultimate destination. It’s difficult, even for the most compliant company, to know for sure that the goods are going to be used for their intended purpose,” Jacobson told AIN.